Many condominiums in Florida have been subject to bulk buy-outs, either due to poor sales from the great recession or, in the case of older buildings, due to an aging ownership, high special assessments or major future repairs (roof or concrete restoration). This issue has led the Florida legislature to recognize that, in certain circumstances, continued operation of a condominium “may create economic waste and areas of disrepair which threaten the safety and welfare of the public or cause obsolescence of the property for its intended use and thereby lower property tax values.”
To address this issue, the Florida legislature amended Florida Statute Section 718.117 to create a termination procedure outside the Declaration of Condominium process which generally requires unanimous approval of all owners in order to terminate the condominium under existing condominium documents. Specifically, the termination under this new section is “not an amendment subject to Florida Statute Section 718.110(4)” which sets forth that “no amendment may change the configuration or size of any unit in any material fashion, materially alter or modify the appurtenances to the unit, or change the proportion or percentage by which the unit owner shares the common expenses of the condominium and owns the common surplus of the condominium unless the record owner of the unit and all record owners of liens on the unit join in the execution of the amendment and unless all the record owners of all other units in the same condominium approve the amendment.”
The procedure often raised by bulk owners is known as an Optional Termination. Specifically, this type of termination may be initiated pursuant to a Plan of Termination of the Condominium as follows:
1. Must be approved by at least eight (80%) percent of Unit Owners.
2. If proposed by a Bulk Owner (an owner who directly or through affiliates controls 80% or more of the voting units), then, in addition, the following requirements:
a. Payment to owners of “at least 100 percent of the fair market value of their units.”
b. “Provide for payment of a first mortgage encumbering a unit to the extent necessary to satisfy the lien, but the payment may not exceed the unit’s share of the proceeds of termination under the plan.”
c. Include special notice within any proposed Plan that states:
i. “The identity of any person or entity that owns or controls 25 percent or more of the units in the condominium and, if the units are owned by an artificial entity or entities, a disclosure of the natural person or persons who, directly or indirectly, manage or control the entity or entities and the natural person or persons who, directly or indirectly, own or control 10 percent or more of the artificial entity or entities that constitute the bulk owner.
ii. The units acquired by any bulk owner, the date each unit was acquired, and the total amount of compensation paid to each prior unit owner by the bulk owner, regardless of whether attributed to the purchase price of the unit.
iii. The relationship of any board member to the bulk owner or any person or entity affiliated with the bulk owner subject to disclosure pursuant to this subparagraph.
iv. The factual circumstances that show that the plan complies with the requirements of this section and that the plan supports the expressed public policies of this section.
Once the Plan of Termination is presented to the owners, it must be approved by Bureau of Condominium within forty-five days of presentation. If no owners object (see below) and the division approves the Plan (or if no approval, no rejection with forty-five days) then the termination may proceed as outlined within the Plan.
Once the Plan is presented to owners, should five (5%) percent or more of the total voting interests of the condominium reject the plan of termination by negative vote or by written objection, the plan of termination may not proceed. In addition, if rejected by the required voting percentage, “a subsequent plan of termination pursuant to this subsection may not be considered for 24 months after the date of the rejection.”
By way of example, if a condominium consists of one hundred units, then it would require the holder of not less than eighty units to vote to proceed with a plan of termination, and five or more-unit owners reject such plan, then termination will not be permitted. All such rejections should be made in writing and if the plan has been submitted to the Bureau of Condominium, that the written objection be filed therewith.
With the continuing strength in the rental market and the ongoing failures at many condominiums, termination and conversion thereafter into apartments will continue to be a viable process for distressed condominiums and their owners.
Michael Posner, Esq., is a partner in Ward Damon a mid-sized real estate and business oriented law firm serving all of South Florida, with offices in Palm Beach County. They specialize in real estate and can assist associations in all legal matters including bulk termination. They can be reached at 561.594.1452, or at firstname.lastname@example.org